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Ups and Downs: Words matter in trademark licensing agreement

Cantor Colburn IP Newsletter February/March 2024

A garage door company probably thought its settlement with a competitor over alleged trademark violations left it free from additional lawsuits regarding its use of the competitor’s marks. A court ruled otherwise, instead holding that a trademark licensee could sue the company even though its licensing agreement didn’t expressly authorize it to do so.

Shut one door…

Garage door company D.H. Pace Company (Pace) had a licensing agreement with Overhead Door Corporation (ODC). As part of the agreement, Pace used ODC’s marks. Pace has spent millions of dollars advertising and promoting the marks through its websites, on social media, through search engines and at trade shows.

Pace sued its competitor Overhead Garage Door (OGD) for violations under the Lanham Act, the federal trademark law, regarding the licensed marks. Additionally, before this lawsuit, ODC and OGD had been in litigation over OGD’s alleged trademark infringement and unfair trade practices. The prior litigation eventually settled.

A trial court found that Pace could make a claim against OGD, noting the “scores” of examples of customer confusion and that Pace’s goodwill and company reputation fell squarely within the Lanham Act’s “zone of protection.” Nonetheless, the court dismissed the claim before trial.

It found that Pace couldn’t sue OGD because 1) the licensing agreement didn’t grant Pace a right to sue, 2) Pace was a nonexclusive licensee with insufficient ownership rights in ODC’s marks, and 3) the settlement agreement extinguished Pace’s claims. Pace then turned to the U.S. Court of Appeals for the Eleventh Circuit for relief.

…Open a new door

The appeals court concluded that none of the reasons enumerated by the trial court blocked Pace’s ability to sue OGD. It first found that the trial court erred when it read a ruling in a previous case to mean that a licensing agreement must include a right-to-sue provision before a licensee can bring a Lanham Act claim. Rather, the Eleventh Circuit explained, the earlier case simply acknowledged that a licensing agreement can limit a licensee’s otherwise broad ability to bring such a claim.

The agreement at issue here, though, didn’t contain such a limitation. The court held that without the licensing agreement posing a contractual bar on Pace’s ability to sue, Pace was free to bring a Lanham Act claim.

Pace’s status as a nonexclusive licensee also didn’t bar it from suing OGD. The Eleventh Circuit found that none of the cases the trial court cited in support of its finding to the contrary were binding on the appellate court. They were either from lower-level trial courts or appellate courts in other jurisdictions. Moreover, the facts in those cases were different from those in the present case. For example, the previous cases cited all dealt with trademark registrants, but Pace wasn’t a registrant.

Finally, the Eleventh Circuit disagreed that OGD and ODC’s settlement agreement barred the lawsuit. The agreement specifically stated that it wasn’t binding on “current and future licensees.”

Look in the rearview mirror

While OGD obviously had no input on the licensing agreement, it did have a say in the settlement agreement. Alternative language in the settlement agreement could have blocked the lawsuit it now faces anew.

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